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Ripple Effect - SC Ban On Diesel Vehicle

Published on:
06 Jan, 2016,
Author – IndianBlueBook

The SC ban order

The SC bench headed by Chief Justice TS Thakur imposed over 2000cc diesel engine restrictions, on a trial basis and is in effect in Delhi and NCR region till March 31st 2016. This order is in effect an extension of the existing National Green Tribunal order that was in force till January 6th 2016.

Key takeaways:

The interim Supreme Court ban order on new diesel vehicles over 2000cc engines up to March 31st 2016 affects SUVs and top-end models.

Commercial vehicles that are registered before Year 2005 will not be permitted to enter and operate in Delhi, NCR region.

Transport trucks not intended to Delhi will not be allowed to enter, to stopover or traverse on highways NH8 and NH1 passing through the city.

Environment or Green cess on trucks coming into the city is doubled. On top of toll tax, presently green cess for lighter diesel vehicles is at 700 and 1,300 INR for 3-axle vehicles. This has been doubled to 1,400 and 2,600 INR correspondingly.

Cabs, taxi aggregator services have to mandatorily shift to CNG by March 31st

Existing, previously registered diesel cars, SUVs are allowed to ply during this period.

The ban will be reviewed in April 2016 when Euro 4-compliant diesel engines are operational with newer emission norms.

The reeling impact on the Auto market

Diesel-specialised automakers like Mahindra, Tata Motors, Mercedes Benz and Toyota are most impacted by the SC order. Toyota’s Innova and Fortuner models were big-ticket vehicles in New Delhi. The sales of Tata Safari, Sumo and Xenon from the Tata Motors portfolio are affected.

Therefore, during the ban period, collective sales loss is estimated at 12,000 units or more and 6,614 crores voided impact on automakers market capital.

Most automakers felt let down and reflected a common sentiment that before passing the order, their opinions were not sought.

As per the President of SIAM, “The order caught the auto industry unawares and the regulatory orders were passed not in consultation with automakers. He also observed that Delhi’s pollution problem was much beyond diesel vehicles, as it constituted just about 3% of the total pollution dangers.

In Delhi, presently, diesel vehicle sales volume is about 25-30% of the total passenger vehicles sold. This is a substantial figure and therefore, the decision can have long-term impacts.

Impact on homegrown automaker Mahindra

The SC ban order on 2000cc vehicle categories will definitely impact the homegrown auto manufacturers like Tata Motors and Mahindra, as powerful engines was their USP and their range of SUVs were in this category. And Delhi was noticeably a big market for most auto companies.

Reacting to the Apex court order, Mahindra in a statement has said that while respecting the court order, they definitely hope that a more comprehensive approach is taken so that impact would be minimal for the auto industry.

But the brunt of the SC order on M&M wouldn’t be as exacting as was expected. Even though 98% of its range of vehicles have engines over 2000 cc. The range of its UV portfolio that are affected would be the Mahindra Bolero (2500 cc), Scorpio (2200 to 2500 cc), XUV500 (2200 cc), Thar (2500 cc), Xylo (2200 to 2500 cc), SsangYong and SsangYong Rexton. Presently, Delhi and the NCR region contributed to a negligible 2% of the total monthly sales volume.

Mahindra’s, ED, Dr. Pawan Goenka observed that at all stages the company had made stipulated optimal diesel engines and environmentally cleaner vehicles. And in the last 15 years, the particulate matter, PM has come down by 82% and nitrogen oxide, NOx by 51% in BSIV diesel vehicles as compared to pre-BSII vehicles. In future, when BSV vehicles are launched, the PM would be down by about 80% and NOx would considerably be down by another 36%.

In the event of the SC order, and its future outcomes, wherein possibilities like ban period extensions, reviews, revisions and countermeasures are implemented, Mahindra’s go-to-market strategy and tactics would definitely see a change. Evaluations, assessments, strategy reworking and weighing different options within the said framework are also what Mahindra is planning.

In the interim, Mahindra would aggressively promote the new entrant, 1500 cc TUV300 in the NCR region as its engine is below the stipulated 2000 cc engines and it can be registered too.

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The dent to the Luxury car market

Delhi and Mumbai are the biggest markets for luxury cars in India and its market presence in Delhi, NCR region would take a serious dent in the event of the Supreme Court ban.

Mercedes Benz is the most affected as 3 of its eleven non-AMG models like CLS, GL and GLE have diesel engines. And it definitely seems like its entire vehicle portfolio, right from its A to S class sedans and SUVs. Diesel vehicles constitute 70% of its sales and Delhi is a very important hub, contributing to about 15% of its sales.

This is followed by automakers like JLR’s Jaguar and Land Rover, BMW and Audi. The sales of many of JLR’s model lineup from Jaguars to Land Rovers are impacted. About 6 models of BMW cars and two models of the Audi and Volvo are affected by the ban.

Current diesel vehicle statistics

Viewpoints on diesel vehicle emissions are many. One viewpoint is that diesel cars pollution throw in is just 1.86% of the total, and an opinion in stark contrast is that 23% of cars Delhi registered cars were diesel cars and emitting 7.5 times more PM, particulate matter than petrol vehicles.

Diesel vehicles account for 80% of sales in Delhi. In the NCR area, the total sales contribution is 22%. Today, Delhi has 8.5 million vehicles, an almost 100% increase from Year 2000. Every day, 1,400 vehicles are added. Out of the total, 27,282 registered vehicles that are over 2000cc, 25,840 are diesel and 284 petrol vehicles. And so numbers seem to be doing the talking.

Years 2013, 2014, 2015 saw 3,335, 3,514, and 4,013 diesel vehicle registrations in the city. This clearly shows customer preferences, choices, spending power, and interest in high-end cars not just in the urban community but also rural populace.

Why the diesel vehicle preference?

Customers prefer diesel cars for its mileage; it is perfect for people travelling long distances every day. They are fuel-efficient, cost-effective and are proven to be a good savings, even though the vehicle is costlier than the petrol variant.

For people who prefer cars and SUVs with powerful engines or luxury diesel cars, they are definitely fitted with an over 2000cc engine. Over time, customers’ have leaned towards such vehicles and its market presence is inconceivable and that is why automakers were introducing newer 2000cc makes and models.

Yes. Petrol vehicles are also a good buy. In fact, are more efficient than diesel vehicles. As its engines are lighter and have greater revs. Diesel vehicles are definitely higher maintenance and spare parts are also costlier. Not to miss, the costlier a car, greater its insurance premium.

And so, future changes, impact?

Just when the auto industry was witnessing steady growth with cash registers ringing, has the ban been enforced. So, what does it essentially imply? Well, as the ban is in place for at least the 3-4 months and the future is unknown, most automakers will definitely revise and modify approaches, as Delhi was an important market especially for luxury cars.

Customers’ on the other hand, may switch over to petrol vehicles as there is an uncertainty with diesel vehicles. Also those who prefer these vehicles have diverted to the older, used car market.

On the one hand, the long-term implications, a clear roadmap to diesel vehicles future, and regulatory policies will be keenly watched before auto companies go back to the drawing board for newer fuel options, emission controls and new technology. And in effect, there will be a policy rework of sorts for most diesel cars and SUVs.

Auto companies who have a dominant diesel vehicle portfolio will be impacted most. As automakers plan and work ahead, changes like these, even if it were for a short period, can be very disruptive and its ripple effect will be felt for a long time.

Vehicle insights, used car valuation, reviews, user sentiments, feedback and more can be found in, IBB, www.indianbluebook.com.